When Did Paper Money Become Legal Tender?
Paper currency became national legal tender in the 1860's. Before then, state banks issued currency. The Civil War and the public's lack of trust in state banks caused the government to issue its own paper currency.
Other People Are Reading
-
What is legal tender?
-
Paper currency that is legal tender is backed by the federal government and can be used as payment for debts.
History of paper currency
-
Early colonies issued paper currency because of the lack of coins. The Continental Congress issued currency during the Revolution, but it became worthless because it was not backed by precious metals. At first, currency was printed by state-approved banks, and its value depended on the bank's trustworthiness. By the 1860's, the U.S. Treasury began to issue legal tender notes as the first national currency.
-
Federal reserve system
-
The Federal Reserve System, created in 1913, reformed currency with Federal Reserve Notes to regulate and stabilize the economy.
Gold standard
-
The government backed legal tender notes with gold and silver to promote public trust, but the Great Depression brought the demise of the gold standard. After numerous bank failures, the gold standard was blamed for devaluing goods and services.
Legal tender as "fiat" currency
-
Federal Reserve Notes are now backed solely by public trust in the federal government (fiat currency).
-
References
- Photo Credit Image by Flickr.com, courtesy of Paul Sapiano
